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Patent litigation through crowd funding: want to sponsor a battle against trolls?

The roll of the troll in shaping US patent legislation, and the dividing line between true and the faux troll, are matters that can provide endless hours of argument both in the United States and beyond. The following guest post from Katfriend Bertrand Sautier reflects the fine line that separates different species of plaintiff in patent infringement litigation -- where the impact of litigation is felt in much the same way by the defendant, regardless of the plaintiff's credentials. It illustrates the prospect of crowd-funded defence to infringement actions in terms of real dollars and cents. Writes Bertrand:

Crowd
funding has been known for years as a good way to raise money for those who
cannot access the traditional lending
system. Originally used mostly in the music industry, this model has evolved to something
much more sophisticated. Today, many types of projects have been financed by
crowd funding such as movies, start-up, civic or educational projects, and even
a “cat café” in London.Besides
some IP issues due to the specificity of this service (see herefor a Kat report about the Kickstarter Lawsuit), the crowd funding system was not known for being used in
legal battles -- until now.

I
recently came across the story of the Ditto Company. Besides being a
traditional online eyewear vendor, Ditto has created a web service that allows
you to “try on” a pair of glasses after taking multiple pictures of you. Thus
you might know if the shape of specific sunglasses is right for your face.The company
is now being sued for patent infringement in two different lawsuits in the US. In
order to raise money to litigate, they made a statement that can be found on
their indiegogo page. Here are the most IP-related snippets, followed by my own comments:

“Our Story

… recently, two separate
“patent trolls” have sued us for patent infringement, and the enormous cost of
defending ourselves in court is threatening to put us out of business. (Patent
trolls are groups who buy patents to sue others who have independently
developed inventions.) As opposed to reinvesting capital in growing our
business and hiring people, we have to spend all of our money on these
lawsuits. It’s devastating.”[It is true that the action
of patent monetization entities can be a real threat to small companies in the
US (PME is the term being used by Stefano Barazza in its posts about non-practising entities/patent trolls on the IPKat. See part one, two and three for this excellent overview)].

Additional
Details about the Lawsuits

The first case is a patent
infringement complaint filed by Lennon Image Technologies (Case 2:13-cv-00236).
Lennon is a non-practicing entity based in the Eastern District of Texas – the
most plaintiff friendly county in the country. They are a classic patent troll
because they don’t create anything themselves but instead exist solely to buy
patents and use them offensively. Trolls knows it costs literally
millions of dollars to defend a patent lawsuit, so they use the threat of
litigation as a weapon to force companies into cutting them checks to go away.
But unlike most of the large businesses, we simply can’t afford to do this!”[Lennon Image Technologies
could be described as the typical patent troll: a small company, created with a
simple corporate structure (the Texas Limited Liability Company), that does not
produce any goods or services, is not part of any inventive activity, and has
purchased a patent in order to enforce it before a pro patentee court.

So far, Lennon Image Technologies has been conducting seven different lawsuits, all filed on 27 March 2013 in Marshall, Eastern District of Texas (qualified as a “renegade
jurisdiction” by Justice Scalia during the oral argument in eBay Inc. v
MercExchange). These demands are all based on the same patent entitled
"Customer image capture and use thereof in a retailing system" n°
6,624,843. This patent was granted in 2003 by the USPTO and has been under an
ex-parte examination for several months.

This follows a preceding series of complaints filed before the U.S. District Court for Delaware.Standing on purely
economic grounds, since the company cannot afford to pay for the “checks” asked
by the troll, Ditto should probably try to raise money in order to pay not for
litigation costs but for a license agreement, as it would probably be cheaper.
But I guess that the related lobbying for legislative change implies to keep on
legal fighting].

“The second case is a patent
infringement complaint filed by a competitor who is using a recently purchased
patent to seek an injunction on our 3D virtual try-on technology for eyewear.The upsetting part about this case
is that Jonathan Coon, cofounder and CEO of 1-800-Contacts, used DITTO's
virtual fitting technology soon after our launch in April 2012 and then
afterwards, in May 2012, moved to acquire rights to a patent, which they are
now using to sue us. While they are a practicing entity, the fact that
they bought a patent to impose egregious litigation costs on us when we
independently developed our technology makes them a “corporate troll” in our
books. We don't think the patent they bought infringes but it will cost us a
lot to prove that in courts.”

There is the tricky part.
Ditto claims to be sued by two patent trolls but it appears that only one them
could be subject to that infamous qualification. Whether 1-800-Contacts acts as
a “corporate trolls” remains a different question. Here is an operating company that acquired a
patent and is now enforcing it against a competitor. This is the way the patent
market has been working for many years. The value of the second patent or the strategy
of 1-800-Contacts might be discussed, but not through the lens of patent
trolls. It seems more realistic to consider that Ditto is a company that may
not have considered the importance of IP in the US, whether it is to protect
your services against infringers or from frivolous demands from third parties.

Ditto is seeking for $30,000 in order to hire
attorneys and pay for all the litigation costs. So far the campaign has raised
almost $10,000 and still has 33 days to go.

Since the Crowd Funding system differs from the simple
sponsorship, everyone who invests $30 will receive a printed t-shirt whit the
slogan “I beat Trolls”.This particular case reflects the current debate being
held before Congress for a few years now. It is not the amount of patents on the
market or their quality that is being discussed; rather, it is the cost to defend
yourself before a patent court. The Shield Act(stands for Saving High-Tech Innovators from
Egregious Legal Disputes) claims to be a solution to this. The major change
contained in this text is the introduction of a “loser pays” rule. This is a
quite common rule in Europe (for example codified in Article 700 of the French
civil procedure code: English version here) that gives a chance to the winning party to recover
some of the expenses that have been made during the trial. The study of this
highly criticized Act should probably take much longer than this post as it may
concern more players than just PMEs.

Ditto shows strong support for the Shield Act and is
asking for everyone to “send a message to your congressmen asking them to
support this bill”. Thus, when crowd funding meets lobbying and trolls, it becomes
hard to get a bird’s-eye view of litigation.

Patent litigation through crowd funding: want to sponsor a battle against trolls?
Reviewed by Jeremy
on
Sunday, June 09, 2013
Rating: 5

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The plural of anecdote is not data but [url=http://arstechnica.com/tech-policy/2013/05/eff-wants-30000-to-defeat-a-ridiculous-podcasting-patent-troll/] this [/url] provides an interesting counterexample I think.

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